Seattle Post-Intelligencer, December 28, 2007: War on poverty ignores low-income childless

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Over the past few decades, a strong bipartisan coalition has dramatically increased U.S. government assistance for low-income families with children.

We have adopted and expanded an earned income tax credit, which is quite generous to poor individuals with young children. We have expanded the access that young children have to federal health care and provided parents generous child tax credits.

Yet there has been a tragic side effect of all this attention on children: The childless poor have been forgotten.

The divergence in society’s treatment of those with and without children is startling. Anne Moore of the University of California at Berkeley and I recently performed a study of how government policy toward the poor has changed over time.

We found that a typical single mom with two children and a constant dollar income of $14,000 paid about $1,000 in federal taxes in 1979, yet received a net subsidy of about $2,600 by 2004. While taxes for families with children have been going down, those paid by the childless have stayed high. A typical single individual with a constant dollar income of $17,000 paid about $4,000 in taxes in 1979 and about the same in 2004.

In other words, government has done nothing on net to help reduce the tax burden on low-income childless individuals since the 1970s.

An important new study, by University of Wisconsin economist John Karl Scholz, provides a chilling perspective on the real human costs of this oversight. With the after-tax return for working so low, it should be little surprise that many individuals simply choose not to get a job.

Indeed, employment for low-skilled males, in particular, has headed south. In the hardest-hit group, black men between the ages of 18 and 40 with less than a high school diploma, the employment rate has dropped from 60.4 percent in 1990 to an astonishingly low 50.9 percent in 2003.

The literature suggests that bleak job prospects can lead to crime. Scholz reports that incarceration rates have been rising. Fully 60 percent of black male high school dropouts born between 1965 and 1969 had spent some time in a state or federal prison by 1999.

Other problems abound. Young men without jobs are less likely to find spouses and have stable family units.

While Social Security and our other unsustainable entitlement programs are certainly significant public policy challenges, the egregious neglect of the childless poor is clearly the most pressing fiscal policy issue facing the U.S.

The only consolation is that when such serious problems are left unaddressed for so long, relatively small and inexpensive policy changes can make a major difference.

Scholz demonstrates this with a policy proposal that should have broad bipartisan appeal. He advocates a two-step policy.

First, government should make low-income childless individuals eligible for an expanded earned income tax credit. Second, the government should provide an employment subsidy that pays workers who live in targeted areas a 50 percent subsidy on the difference between their market wage and $11.30. So a worker who makes $8 an hour would suddenly find himself eligible for an ample refundable tax credit and receive a wage subsidy of $1.65 an hour.

This policy would, Scholz estimates, cost about $10.4 billion per year. That’s small change compared with the overall federal budget, and the benefits of his proposal are so high that it would easily pass a cost-benefit test.

That is because the higher return for working would, according to the best estimates from the economics literature, draw about 850,000 targeted individuals into the labor market.

Even if you don’t care about social justice, you should support this policy. With so many individuals busy working, crime rates would go down and family formation would go up. Scholz estimates plausibly that the benefit to society from reduced crime alone would more than recoup the cost of the program.

Politicians tend to step over one another in a contest to demonstrate their humanity through charity to children. It is politically easy to generate support for expansions of existing programs that help needy children by conjuring up images of the Little Match Girl, the fairy tale about the child who dies while selling matches in the cold winter.

It is much tougher to convince people to steer society’s limited resources to a 28-year-old male who may have had trouble with the law.

Democrats and Republicans probably always will disagree about taxing the rich, but they have reached a consensus on providing assistance to low-income families with children. Both sides need to pause and recognize that individuals worthy of help when they are 18 are also worthy of it when they are 19, or even older, and proposals such as Scholz’s are both sound policy and urgent.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Sen. John McCain of Arizona in his bid for the 2008 presidential nomination.

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